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Thursday, 28 May 2009

Canadian index allows investors to follow Shariah law

Standard & Poor's is launching a Shariah compliant version of the S&P/TSX 60 that will exclude companies that don't meet criteria outlined within Islamic law.

Shariah law, based on the teachings of the Koran, does not allow for investment into companies that deal in pork, alcohol, gambling or pornography.

Banks are also excluded because investors are not allowed to earn profit from interest.

"Companies which have high levels of debt or high levels of interest earnings are also screened out," Alka Banerjee, Vice President of Standard & Poor's Index Services, told CTV.ca in an interview from New York on Wednesday.

At present, companies which have debt less than 33 per cent of their market capitalization are allowed within the index.

A Shariah Supervisory Board, comprised of Islamic scholars, determines if a company qualifies.

Banerjee said Shariah-compliant indexes are still in their infancy but interest is growing.

"A lot of Islamic investors would like to invest along their religious beliefs as well as the rise of petro-dollars in the Middle East, as well as the prosperity in southeast Asian has all led to a demand for Shariah indices and other kinds of products," Banerjee said.

Including the Canadian launch, S&P now has Shariah compliant indices in 52 markets.

Other markets include the S&P 500 Shariah, S&P Europe 350 Shariah, S&P Japan 500 Shariah and S&P CNX Nifty Shariah to name just a few.

The S&P/TSX 60 Shariah Index currently has 25 companies that meet the board's requirements.